Rev. Rul. 56-392

Reconsideration has been given to I.T. 3502, C.B. 1941-2, 89, in view of the recent decision in Asthmanefrin Company, Inc. v. Commissioner , 25 T.C.No. 129, acquiescence, page 5, this Bulletin.

I.T. 3502, supra , holds that, in Oregon, real and personal property taxes accrue as of January 1 of the calendar year 1942 and subsequent years.

In the Asthmanefrin Company case, the Commissioner, under the authority of I.T. 3502, supra , contended that real property ad valorem taxes on certain real estate acquired by the petitioner in April 1949, actually accrued as a liability to the prior owner on January 1, 1949, when assessed, and consequently the amounts expended by the petitioner in November and December of 1949 for the payment of such taxes should be capitalized as part of the cost of such property and that such sum was not deductible as taxes paid. The court held that, in Oregon, real property taxes accrue on July 1 of each year when liens attach to the property. Therefore, the taxpayer was entitled to deduct taxes which became a lien against the property on July 1, 1949, since he was the owner of the property at such time.

In reaching such holding the court stated:

It is thoroughly settled that the purchaser of real property who thereafter pays the tax thereon for the year of purchase may deduct real property ad valorem taxes assessed against the property before he acquires title to it if no lien has attached to the property for the taxes prior to acquisition and the taxes were not a personal debt of the vendor under the applicable law. Magruder v. Supplee , 316 U.S. 394; Robert LeRoy , 4 T.C. 70, affd. 152 F.2d 936; Adda, Inc. , 9 T.C. 199, affd. 171 F.2d 367; F. A. Gillespie Trust , 21 T.C. 739. Thus, in the present case, if under Oregon Law, there was neither a personal liability on the part of the petitioner's grantor nor any lien on the real property prior to the date of the sale, petitioner was entitled to deduct the full amount of the 1949-1950 real property ad valorem taxes paid by it in the year 1949.

The facts in the instant case disclose that, when the petitioner acquired title to the real property in April 1949, the lien for the taxes in question had not become fixed, but such taxes did become a lien on July 1, 1949, at which time the petitioner was the owner of the property.

In Revenue Ruling 56-145, C.B. 1956-1, 612, under a similar set of facts, it was held that, in Delaware, ad valorem taxes on real estate accrue on their due date when liens attach to the property. The owner of the property at such time is entitled to deduct such taxes when paid or accrued, depending on the accounting method used, irrespective of when the assessment becomes final and whether the assessment antedates a change of ownership.

In view of the above, it is held that in Oregon ad valorem taxes on real estate accrue on the first day of July of each year, at which time liens attach to the real property. For taxable years to which the Internal Revenue Code of 1939 is applicable, only the owner of the property at such time is entitled to deduct such taxes when paid or accrued, depending upon the method of accounting employed, irrespective of the date of assessment or whether such assessment antedates a change of ownership.

Inasmuch as section 311.405(3) of the Oregon Revised Statutes provides that taxes on personal property shall be a lien on such property from and including January 1 of the year of assessment, the holding in I.T. 3502, supra , with respect to the accrual date of personal property taxes imposed by the State of Oregon will continue to be followed.

I.T. 3502, C.B. 1941-2, 89, is modified in accordance with the foregoing.